How is the Capital Gains Tax Payment Calculated?
Have you considered how Capital Gains Tax (CGT) is calculated when selling or gifting a UK residential property? As part of the 60-day reporting requirement, a tax computation must be prepared to estimate the CGT due.
Did you know that this payment is treated as an advance towards your final self-assessment tax liability? It’s essential to get this estimate right, as interest will be charged if the actual CGT is higher than your initial payment.
Wilson Nesbitt Tax Director Liam Coulter offers his professional insights & addresses clients’ main questions on CGT.
What Can You Deduct When Calculating Your Gain?
When calculating your capital gain, have you factored in your annual exemption? For individuals, this exemption is £3,000 from the 2024-25 tax year onwards. You can also deduct allowable capital losses incurred before the disposal, including any losses brought forward from earlier years. However, remember that losses arising later in the tax year cannot be included, though you can factor in anticipated reliefs.
What CGT Rate Will You Pay?
Are you unsure about the Capital Gains Tax rate that applies to you? The rate (18% or 24%) depends on your other taxable income for the year. If you need to file a 60-day return, it’s possible you won’t know the exact rate or if a combination of rates applies. In this case, the key is to make a reasonable estimate of your other taxable income. By doing so, you can avoid penalties for inaccuracies, as long as your estimate is well-supported. You should keep records to evidence that your estimate of your other taxable income is a reasonable one.
Can You Amend Your Return?
If your taxable income changes later in the year, how can you update your CGT calculation? Once your actual taxable income is known, you should recalculate the CGT due. You can either report this in your self-assessment tax return or submit an amended 60-day return if it becomes clear that a different estimate of your income is now reasonable. Correcting a submitted return is possible, but amendments can only be made for events that occurred up to the completion date of the disposal—not after.
Do You Need to File a Self-Assessment Tax Return?
Are you aware that using the 60-day digital service might save you from filing a self-assessment tax return? If your CGT payment and reporting are correct, and you have no other tax liabilities, there’s no need for a self-assessment return that year. However, if other tax matters require you to file, you’ll need to report the gain again within your self-assessment return.
Understanding these key steps can help you avoid unexpected interest charges, penalties, and ensure you comply with the 60-day CGT reporting requirements efficiently.
*The above advice reflects the tax rules currently in force and may be subject to changes made in the recent October 2024 budget.*
Get in Touch
Wilson Nesbitt’s expert Tax team can provide early advice, reduce the tax payable where possible and take the hassle of reporting out of your hands. For further information and a fee quote contact Director Liam Coulter and our team; capitalgainstax@wilson-nesbitt.co.uk